Solved: When a sports team hires an expensive new player

or
When a sports team hires an expensive new player or

When a sports team hires an expensive new player or builds a new stadium, you often hear
claims that ticket prices have to rise to cover the new, higher cost. Let’s see what monopoly
theory says about that. It’s safe to treat these new expenses as fixed costs: something that
doesn’t change if the number of customers rises or falls. You have to pay Miguel Cabrera the
same salary whether people show up or not, you have to make the interest payments on the
new Comerica Park whether the seats are filled or not. Treat the local sports team as a
monopoly in this question, and to keep it simple, let’s assume there is only one ticket price.

a. As long as the sports team is profitable, will a mere rise in fixed costs raise the equilibrium
ticket price, lower the equilibrium ticket price, or have no effect whatsoever on the equilibrium
ticket price? Why?

b. In fact, it seems common in real life for ticket prices to rise after a team raises its fixed costs
by building a fancy new stadium or hiring a superstar player: In recent years, it’s happened in
St. Louis and San Diego’s baseball stadiums. What’s probably shifting to make this happen?
Name both curves, and state the direction of the shift.

c. So, do sports teams spend a lot of money on superstars so that they can pass along the
costs to the fans? Why do they spend a lot on superstars, according to monopoly theory?

When a sports team hires an expensive new player or

ANSWER
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